New inquiry needed: Bendigo Bank

Bendigo and Adelaide Bank has called for another parliamentary inquiry into Australia’s financial system to address the banking system’s reliance on offshore funding.

Bank chairman Robert Johanson told shareholders he hoped the Senate’s inquiry into banks would result in a better articulation of proper community expectations for the banking system than the current political furore over banks’ profits and interest rates.

“Hopefully it will not just be a whinge session,” he said at Bendigo’s AGM held simultaneously in Adelaide and Bendigo on Wednesday.

“Another Campbell-type inquiry into the financial system we think would also be warranted, not a Wallis-type inquiry into bank regulation where Australia’s system proved so successful over the past decade.

“I certainly hope it will have a more ambitious brief than Mr Hockey’s list of nine questions,” he said, referring to Opposition treasury spokesman Joe Hockey’s nine-point plan for bank reform.

Mr Johanson said such an inquiry should be conducted after global banking rules setting capital and liquidity requirements were finalised.

The Campbell inquiry into the Australian financial system was established in 1979 to recommend changes to the regulatory structure of the financial system to promote efficiency and stability.

Its final report in 1981 contained 260 recommendations covering all aspects of regulation, and said many regulations should be removed, but government intervention in the sector should not be completely abandoned.

Mr Johanson told shareholders an inquiry into the financial system was needed to address Australian banks’ reliance on offshore funding.

He said it was also necessary to work out whether incentives were needed to encourage the $1.5 trillion in superannuation savings to flow into domestic interest bearing securities that could help fund the local banks and reduce Australia’s structural savings deficit.

The current incentives faced by banks to provide cheap lending for housing instead of business should also be questioned to decide if this was in Australia’s long-term national interest, he said.

Mr Johanson also referred to the “furious reaction” to the Murray Darling Basin Authority’s report on water reform.

The bank had not changed its lending criteria or its foreclosure policies as a result of the draft report, he said.

Mr Johanson also weighed into the political debate over banks’ profits, saying new rules over capital and liquidity set by global regulation authorities meant banks would be a lower risk business in the future.

“So investors should accept lower returns,” he said.

Return on equity (ROE) was a measure of profitability and the Australian banks delivered ROE of 20 per cent or more prior to the global financial crisis, he said.

A return to that level was still anticipated by bank analysts, but historically such returns were “unusually high and beyond what one would expect of a privileged, government guaranteed utility”, he said

Bendigo posted record cash earnings of $291 million in 2009-10, and both cash earnings per share and dividend per share had now returned to pre-crisis levels, he said.

Managing director Mike Hirst said the bank was well placed to grow its business over the medium term.

He told shareholders the bank’s new corporate head office would be located at the existing Harris Scarfe site on Grenfell Street in Adelaide and would accommodate about 1000 staff.